Question

Question: An asset has a useful life of 3 years. cost of the asset is $2000. Residual value is $500.

the asset can be used for a total of 1500 hours. it is used for 650 hours in the first year of operations and for 600 hours in the second year.

Depreciation expense for the three years will be as follows:

Calculate annual depreciation for the first and second year of the operations using (1) straight-line method (2) Units of production method and (3) reducing balance using 30%.

Answer 1

Cost	$          2,000
Salvage Value	$              500
Depreciable Value	$          1,500
Useful Life	3 Years

		Year 1	Year 2
1	Straight-line method	500.00	$        500
2	Units of production method	650.00	$        600
3	Reducing balance	450.00	$        315

Straight-line method
Depreciable Value	$     1,500
Useful Life	3
Depreciation-Year 1	$         500
Depreciation-Year 2	$         500

Units of production method
Depreciable Value	$     1,500
Total Hours	1,500
Depreciation-Year 1 (1500/1500*650)	$         650
Depreciation-Year 2(1500/1500*600)	$         600

Reducing balance
Depreciable Value	$     1,500
Depreciation Rate	30%
Depreciation-Year 1(1500*30%)	$         450
Written-Down Value(2000-450)	$     1,550
Depreciation-Year 1((1550-500)*30%)	$         315

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